TheCorporateCounsel.net

The reopening of the comment period for the beneficial ownership reporting rules is similar to what the SEC did with respect to the share repurchase disclosure rulemaking, when back in December 2022 the SEC reopened the comment period to post a memorandum from DERA analyzing the impact of the enactment of the Inflation Reduction Act of 2022. The SEC also reopened the comment period for the clawback rules (for a second time) back in June 2022 to allow for comments on a memorandum from DERA.

The practice of reopening comment periods to consider additional economic analysis appears to be relatively novel concept. In the past, DERA’s role has been focused on providing the required economic analysis for proposing and adopting releases for a rulemaking, but it now appears that, in at least some rulemakings, DERA is continuing its research and analysis to inform the rulemaking effort in real time, and the Commission appears to be compelled to provide that research to the public in case it might change the public’s mind about various aspects of the rule proposal.

Another reason for reopening the comment period is when the Commission determines that it may be appropriate to significantly alter the proposed rules, but there does not appear to be sufficient latitude based on the original proposal and the comments submitted to make such changes without soliciting additional comment under the Administrative Procedure Act. If the Commission were to adopt a final rule that strays too far from what is proposed or suggested through the comment process, then that opens the agency up to a legal challenge that its actions were “arbitrary and capricious” in adopting the final rule. We recently saw this sort of reopening situation in the clawback proposal, where the SEC used a reopening release to propose, among other changes, the use of little “r” restatements as a triggering event under the required clawback policies. A similar situation played out with the pay versus performance disclosure requirements, when, in January 2022, the SEC reopened the comment period to revisit the calculation of compensation actually paid and propose additional performance measure disclosures. The Commission ended up adopting the final rules largely as they were described in the reopening release.

Could we see the Commission reopen the comment period for its other open rulemaking projects, such as climate change disclosure and cybersecurity? Anything is possible at this point.

– Dave Lynn